Lakeland Ventures plc is considering a major investment project. The initial outlay of 950,000 will, in subsequent years, be followed by positive cash flows as shown below: Year 1 2 3 4 5 Cash flow 60,000 120,000 350,000 610,000 250,000 The management of Lakeland Ventures plc. expect that the cash inflows shown above are also an accurate estimation of the profit for each of the years. They estimate the appropriate discount rate as 11 per cent per annum. After the end of the fifth year, the business activity will cease and no more cash flow will be produced. The Initial 950,000 investment in plant and machinery is to be depreciated over the five-year life of the project using the straight-line method. These assets will have no value after Year 5. Evaluate the economic viability of this project on the basis of: (a) Payback period (PBP); (4.11 marks) (b) The discounted payback period (4.11 marks) (c) Net Present value (NPV) (4.11 marks) (d) Internal rate of return (IRR) (4 marks) (e) The financial acceptability of the project, based upon the above data. (4 marks) (f) For each method discuss the advantages and disadvantages and the most likely time in a project when the technique would be used. (

Lakeland Ventures plc is considering a major investment project. The initial outlay of 950,000 will, in subsequent years, be followed by positive cash flows as shown below: Year Cash flow 1 60,000 2 120,000 3 4 5 350,000 610,000 250,000 The management of Lakeland Ventures plc. expect that the cash inflows shown above are also an accurate estimation of the profit for each of the years. They estimate the appropriate discount rate as 11 per cent per annum. After the end of the fifth year, the business activity will cease and no more cash flow will be produced. The Initial 950,000 investment in plant and machinery is to be depreciated over the five-year life of the project using the straight-line method. These assets will have no value after Year 5. Evaluate the economic viability of this project on the basis of: (a) Payback period (PBP); (4.11 marks) (b) The discounted payback period (4.11 marks) (c) Net Present value (NPV) (4.11 marks) (d) Internal rate of return (IRR) (4 marks) (e) The financial acceptability of the project, based upon the above data. (4 marks) (f) For each method discuss the advantages and disadvantages and the most likely time in a project when the technique would be used. (13 marks) Total [33.33] marks Annuity Table Present value of 1 receivable at the end of each year forn" years at discount rate, r. Discount rate (r) 5% 6% 7% Years (n) 1% 2% 3% 8% 9% 10% 0.990 0.980 0.971 0.952 0.943 0.935 1 1 2 0.917 1.759 1.970 0.962 1.886 2.775 1.859 1.942 2.884 1.913 2.829 2 1.833 2.673 0.926 1.783 2.577 3.312 0.909 1.736 2.487 3 1.808 2.624 3.387 2.723 3 2.941 3.902 4.853 4 3.717 3.808 4.713 4 3.630 4,452 3.546 4.329 2.531 3.240 3.890 3.465 4.212 3.170 3.791 5 4.580 4.100 3.993 5 6 5.795 5.601 5.417 4.917 4.767 4.486 6 7 5.582 6.728 7.652 5.242 6.002 6.733 6.472 7.325 6.230 7.020 7 4.623 5.206 5.747 5.076 5.786 6.463 7.108 7.722 4.355 4.868 5.335 5.033 5.535 8 6.210 8 5.389 5.971 6.515 7.024 9 8.566 7.786 7.435 6.802 6.247 5.995 5.759 9 8.162 8.983 10 9.471 8.530 8.111 7.360 6.710 6.418 6.145 10 11 10.37 9.787 9.253 8.760 8.306 7.887 7.499 7.139 6.805 6.495 11 12 10.58 9.954 9.385 8.863 8.384 7.943 7.536 6.814 12 11.26 12.13 13 10.63 9.394 8.853 7.904 13 11.35 12.11 8.358 8.745 7.161 7.487 7.786 8.061 14 9.986 10.56 11.12 9.899 13.00 13.87 11.30 11.94 14 9.295 9.712 7.103 7.367 7.606 8.244 8.559 15 12.85 10.38 9. 108 15 Years (n) 11% 12% 13% 14% 15% 16% 17% 18% 19% 20% 1 0.901 0.893 1.690 2.402 0.877 1.647 0.885 1.668 2.361 0.870 1.626 0.862 1.605 0.855 1.585 0.847 1.566 2 0.840 1.547 1.713 2.444 0.833 1.528 2.106 2.589 3 2.322 2.283 2.246 2.210 2. 174 2.140 4 3.102 2.914 2.855 3.037 3.605 2.974 3.517 2.798 3.274 2.743 3.199 2.690 3.127 2.639 3.058 5 3.696 3.433 3.352 2.991 6 3.889 3.784 3.498 3.326 6 4.231 4.712 5. 146 4.111 4.564 4.968 3.998 4.423 3.685 4.039 3.589 3.922 7 3.410 3.706 4.160 7 4.288 4.639 3.605 3.837 8 4.799 4.487 4.344 4.207 3.954 8 3.812 4.078 4.303 4.494 9 5.537 5.328 5.132 4.946 4.607 4.451 4.163 4,031 9 4.772 5.019 10 5.889 5.650 5.426 5.216 4.833 4.659 4.339 4.192 10 11 6.207 5.938 5.687 5.234 5.029 4.656 4.486 4.327 11 4.836 4.988 12 6.492 6.194 5.421 5.197 12 4.611 4.715 13 6.424 5.453 5.660 5.842 6.002 6.142 13 5.918 6.122 6.302 6.462 6.750 6.982 7.191 14 5,583 5.724 5.847 4.793 4.910 5.008 5.092 5.342 5.468 5.575 6.628 4.439 4.533 4.611 4.675 5.118 5.229 5.324 14 4.802 4.876 15 6.811 15 Present Value Table Present value of 1 in 'n" years at discount rate, r. Years (n) Discount rate (0) 4% 5% 1% 2% 3% 6% 7% 8% 9% 10% 1 0.980 0.971 0.962 0.952 0.943 0.935 0.926 0.909 1 2 0.961 0.943 0.907 0.890 0.857 2 0.990 0.980 0.971 0.961 0.951 0.925 0.889 0.873 0.816 3 3 0.942 0.924 0.906 0.915 0.888 0.863 0.840 0792 4 0.917 0.842 0.772 0.708 0.650 0.864 0.823 0.784 0.826 0.751 0.683 0.621 0.855 0.794 0.735 0.681 0.763 0.713 5 0.822 0.747 5 6 0.630 6 0.942 0.933 0.888 0.871 0.790 0.760 0.746 0.711 0.705 0.665 0.666 0.623 0.596 0.547 0.564 0.513 7 7 8 0.853 0.837 0.813 0.789 0.766 0.744 0.677 0.502 0.923 0.914 8 0.731 0.703 0.676 0.582 0.544 0.837 0.583 0.540 0.500 0.463 0.627 0.592 0.558 9 10 0.460 0.645 0.614 9 0.467 0.424 0.386 0.905 0.820 0.508 0.422 10 11 0.896 0.804 0.350 11 0.585 0.557 0.527 0.497 0.475 0.444 0.429 0.397 12 0.887 12 0.788 0.773 13 0.722 0.701 0.681 0.661 0.642 0.879 0.650 0.625 0.601 0.577 0.555 0.319 0.290 0.469 0.530 0.505 13 0.388 0.356 0.326 0.299 0.275 0.415 0.388 14 0.870 0.861 14 0.368 0.340 0.315 0.758 0.743 0.442 0.417 0.263 0.239 15 0.481 0.362 15 Years (n) 11% 12% 13% 14% 15% 16% 17% 18% 19% 20% 1 0.885 0.877 0.862 0.847 0.833 1 0.901 0.812 0.893 0.797 0.870 0.756 0.840 0.706 2 0.743 0.855 0.731 0.624 0.718 2 3 0.712 0.769 0.675 0.592 0.658 0.641 0.593 3 0.783 0.693 0.613 0.543 0.731 0.659 0.593 4 0.694 0.579 0.482 0.402 0.552 0.534 0.609 0.516 0.437 0.499 0.636 0.567 4 0.572 0.497 5 0.519 0.476 0.456 0.419 5 6 0.535 0.507 0.456 0.432 0.410 0.370 0.352 0.335 6 0.390 0.333 7 0.482 0.452 0.400 0.376 0.354 0.314 0.279 7 0.285 8 9 0.480 0.425 0.376 0.333 0.295 0.434 0.391 0.352 8 0.404 0.361 0.322 0.351 0.308 0.270 0.327 0.284 0.247 0.305 0.263 0.227 0.296 0.249 0.209 0.266 0.225 0.191 0.243 0.208 0.233 0.194 0.162 9 10 0.176 10 11 0.287 0.261 0.237 0.195 0.162 0.135 11 12 0.257 0.231 0.208 0.112 12 0.317 0.286 0.258 0.232 0.209 0.168 0.145 13 0.148 0.124 0.104 0.229 0.215 0.187 0.163 0.141 0.123 0.178 0.152 0.130 0.111 0.095 0.137 0.116 0.099 0.204 0.181 0.160 13 0.182 0.160 0.140 14 0.205 0.183 0.125 14 0.093 0.078 0.065 0.088 0.074 15 0.108 0.084 15